Sirius Real Estate Limited's (LON:SRE) Share Price Is Matching Sentiment Around Its Earnings

Sirius Real Estate Limited's (LON:SRE) price-to-earnings (or "P/E") ratio of 9.3x might make it look like a buy right now compared to the market in the United Kingdom, where around half of the companies have P/E ratios above 17x and even P/E's above 30x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Sirius Real Estate certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Sirius Real Estate

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sirius Real Estate.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Sirius Real Estate's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 39%. Still, incredibly EPS has fallen 12% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 0.7% each year as estimated by the five analysts watching the company. That's not great when the rest of the market is expected to grow by 16% each year.

With this information, we are not surprised that Sirius Real Estate is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Sirius Real Estate's P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Sirius Real Estate's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Sirius Real Estate (at least 1 which is potentially serious), and understanding them should be part of your investment process.

Of course, you might also be able to find a better stock than Sirius Real Estate. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.